Yellen walks back her no-more-crises comment: live blog and video of Senate testimony

July 13, 2017, 9:11 AM ET

Federal Reserve Chairwoman Janet Yellen is back on Capitol Hill for a second day of testimony, this time in front of the Senate Banking Committee. Watch the hearing as MarketWatch’s Steve Goldstein live-blogs the action.

First, was her prepared comments. The market was excited by this dovish comment: “Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.”

She also sounded a slight bit less confident in inflation. “It appears that the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices; these reductions will hold 12-month inflation down until they drop out of the calculation. Nevertheless, with inflation continuing to run below the Committee’s 2 percent longer-run objective, the FOMC indicated in its June statement that it intends to carefully monitor actual and expected progress toward our symmetric inflation goal.”

Yellen herself pointed out, when asked by a congressman, that’s she made similar comments on the neutral rate before.

“As I’ve said on many occasions, the new normal with respect to what level of interest rates is neutral appears to be rather low, so we have raised the federal-funds rate target. I believe policy remains accommodative.”

She added: “We perhaps have some further moves if the economy proceeds on path it is on, we anticipate neutral may move up some, and that generates a view over time, we may want to increase funds rate a bit more, but that depends on how things evolve.”

One bit of silliness Wednesday was when someone — still, apparently, unidentified — held up a “buy bitcoin” sign behind Yellen. The young man made some $10,000 in bitcoin donations for his promotional activity.

Yellen says she wouldn’t be in favor of reducing capital for the largest banks. Sen. Sherrod Brown, the Ohio Democrat, gets Yellen to concede that “some” of the Treasury’s recommendations on financial sector reform would increase the chances of a financial crisis.

Yellen says the dollar’s strength for some time depressed import prices. But that’s now reversed. She says a few unusual items — like unlimited data plans for cell phones, and big declines for key drugs — may have weighed on prices, but “there may be something more going on.”

“I regard the risk with respect to inflation as two-sided,” Yellen says. While, yes, inflation has been weak, she notes that a tight labor market could eventually lead to higher wages and higher prices.

Sen. Bob Menendez, the New Jersey Democrat, presses Yellen on a proposal in some (Republican) circles to eliminate the full employment mandate from the Federal Reserve. Yellen points out that, at the moment, there really isn’t a conflict between keeping the U.S. at full employment with price stability, because inflation has been so low. But eventually she agrees that, yes, it would be harmful to get rid of it.